BACK TAXES: WHAT IS IT?
These are the kinds of taxes an individual has not yet repaid either fully or partially. Unpaid taxes could be at three levels: Central, State or Local. Unpaid taxes attract high rates of interest and late fee charges.
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SUMMARY
- Back taxes are amounts that haven’t been paid fully or partially to the IRS.
- Such taxes if unpaid can result in penalties and high interest amounts.
- Even then, if it is yet to be paid, then serious legal consequences have to be faced by the individual like liens, wage garnishment, or jail time.
GAINING KNOWLEDGE ABOUT BACK TAXES
Back taxes are those unpaid taxes from previous years. There are several reasons why an individual has not yet paid his taxes. It could be that he is finally unable to repay it now has neglected the duty of reporting his income earned during the year or has forgotten to file the tax returns. If a taxpayer has forgotten to file the tax returns, he is subjected to a penalty with an interest of 0.5% on the amount that is outstanding. This penalty will be terminated only when he pays the full amount including interest or when the interest rate has reached its maximum limit i.e., 25%. Till now we have seen the penalty interest. In addition to the penalty interest, the IRS separately charges interest on the amount still outstanding every quarter. As of today, the interest rate is 3%. It is always advisable to pay your taxes on time, or it could easily escalate and accumulate into a huge amount which will result in a financial burden for the taxpayer later. The Government has crafted various schemes to help people avoid jail time and enable them to pay taxes through payment plans.
ACTIONS TAKEN BY IRS TOWARDS UNPAID TAXPAYERS
The IRS has the power to seize your assets, and property, and place tax liens. The IRS may also interfere with your wage payment to receive the taxes that you are owed to the IRS. If the taxpayer continues to carry on his day-to-day activities, then the IRS will be able to freeze all his accounts and assets like land owned, bank accounts, investments, and vehicles owned by him. The IRS can retrieve the money that you are owed by selling your assets and receiving its value. As of 2016, the unpaid tax collection work has been outsourced to private agencies by the IRS. The IRS is considerate of those taxpayers who have genuine reasons for not filing their taxes and their inability to pay such amounts by offering beneficial schemes and incentives like Offer In Compromise (OIC), Penalty Abatement, Currently-Not-Deductible which enables them to work out an agreement with the IRS to settle for lesser amounts.
TAX LIENS
A tax lien is when the Government places a hold on the taxpayer’s assets. It is exercised only towards individuals who have not been filing taxes for a long period.
